Japanese bonds narrowly mixed in quiet trade

The Japanese government bonds were trading mixed on Monday as markets receive no more important data this week. Moreover, bond prices are likely to be ruled by the movements in the crude oil market. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 1bps to -0.101 pct and the yield on the 2-year bonds stood unchanged at -0.244 pct by 0620 GMT.

The Japanese bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Today, crude oil prices jumped by more than 1 pct as a huge wildfire in Canada disrupted its oil sands production and strong Chinese oil imports last month. China’s crude imports rose 7.6 pct y/y in April, the third straight month that crude imports surpassed 30 million tons. The International benchmark Brent futures rose 1.28 pct to $45.95 and West Texas Intermediate (WTI) climbed 1.81 pct to $ 45.47 by 0620 GMT.

"Oil prices held as concerns over the impact of raging fires in Alberta,Canada, on supply from the oil sands projects lingered," said ANZ economists in a research note on Monday.

Today, the Bank of Japan (BoJ) in its March meeting minutes concluded that the Japanese economy is continuing to recover gradually and most members agree to continue easing until 2 pct inflation stable, most members also agreed will take additional easing steps if needed. Further added that inflation expectations weakened recently and some members noted that attention should be paid to fact consumer sentiment indicators had shown somewhat sharp deterioration due to market turbulence.

The investors will pay close attention to the Friday’s Bank of Japan Governor Kuroda speech in an attempt to estimate the BoJ's likely next step to lower interest rate. In addition, the Cabinet Office will announce Q1 GDP data on Wednesday, 18th May (2350 GMT). The Japanese 2016 Q1 GDP is expected to increase 0.2 pct annualized, from down 1.1 pct in the previous quarter of 2015. Individually, Q1 private consumption, which accounts nearly 60 pct of the GDP is anticipated to increase 0.2 pct, after 0.9 pct decline in the last quarter. On the other hand, capital spending is likely to decline 0.8 pct, after rising 1.5 pct in Q4 of 2015 and external demand is expected to remain unchanged at 0.1 pct.

The BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility. Further, we expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long and we also foresee that the 10-year note will yield about -0.15 pct at year-end. Meanwhile, Japan's Nikkei 225 index closes up 0.68 pct at 16,216.03, while the broader Topix index closed higher 0.64 pct to 1,306.66 points.